The Universe of Money

Are the best credit card deals gone for good?

admin — Mon, 12 Mar 2012 10:10:15 +0000

Ever since the credit crunch began in 2008, banks have scaled back their credit card deals substantially. Previously, balance transfers for periods of 12 to 18 months were considered the norm, but today, they are for much shorter amounts of time. Despite the fact that the Federal Reserve is keeping interest rates at historically low levels, the APRs on credit cards have risen quite a bit over the past couple years. Furthermore, reward programs have been watered down and many banks are tacking on annual fees. In a nutshell, credit card deals just aren’t what they used to be… but does that mean they are gone for good?

Unfortunately, there is evidence to suggest that “the best” may be behind us, and it’s possible we may never see those credit card deals we became accustomed to before the recession. Not only is this due to changing perceptions of the economy, but also because of the fact that new laws are in place which make it less lucrative for banks to offer these types of incentives.
For example, the Credit Card Reform Act makes it nearly impossible for banks to raise a cardholder’s APR during the first year. Previously, banks would often cancel the promo rate if a customer was late on a payment… but now they can’t do that. Naturally, this means banks aren’t able to make as much money off of those whom carry a balance (even if they are high risk borrowers) and in turn, they aren’t being nearly as generous with balance transfer offers.

The other big change consumers have seen lately is with their reward programs. It used to be that the best credit card deals would give you 5% cash back on various categories of spending. Credit card companies would actually lose money on those reward programs, but what made them possible is that those who carried a balance would subsidize those costs (in the form of interest payments). However, now that banks aren’t able to jack up the APR so easily, the drawback is that they are trimming back on those generous reward programs.

Of course overall, the Credit Card Reform was a win for consumers, but unfortunately it also means that many of the deals we were used to may never return.

This guest post was written by Ryan from CreditCardForum.com, where he regularly blogs about the best credit card deals, as well as other news related to personal finance.

The P/E ratio method for credit score estimation

admin — Mon, 12 Mar 2012 10:07:18 +0000

The P/E ratio method is probably the most widely used valuation method for businesses of all sizes, both public and private. This method values a business as a whole by capitalising its future maintainable after-tax real profits to arrive at total value, rather than by valuing goodwill and net assets separately as is done through the super profits approach. Thus, in a P/E ratio method the total value includes goodwill value. A P/E ratio is a way of expressing the capital value of an investment. If you receive a return of £25 on an investment with a capital value of £200, to calculate the percentage yield you divide the return by the value of the investment and multiply it by 100: (25 -4- 200 x 100) = 12.5%. Conversely, if you know the value of the return (£25) and the yield you wish to achieve in an investment (12.5%), you calculate the value you would place on such an investment by multiplying the return (£25) by a P/E ratio or multiple. The multiple is arrived at by dividing 100 by the percentage yield (12.5). In our example, the P/E ratio would be 100 -f 12.5 = 8. If the yield you were looking for was 15% your P/E multiple would be 6.66, and so on.

The concept of the P/E ratio method is simple, but there are practical difficulties with private businesses (especially smaller ones) in establishing the future maintainable profit (FMP) and in deciding what P/E ratio to use in each case. (Note that assets that are not used to generate the business income – known as ‘surplus assets’ – including such things as business premises, or other real estate owned by the business, are not included in the total business value calculated by using this method.)

Credit problems – When fear tells the mind

admin — Mon, 12 Mar 2012 10:05:18 +0000

Greed is not the opposite of fear. Greed, when analyzed, is best seen as a form of fear: fear plus ego. Greed results when fear tells the mind that there

Credit vs. Fear and Greed

admin — Mon, 12 Mar 2012 10:04:52 +0000

All aspects of your emotional makeup come into play in investing. Most commentary on emotions and investing look at fear and greed as the main investment emotions. Fear is an

Emotionless investing and credit

admin — Mon, 12 Mar 2012 10:04:19 +0000

Emotionless investing is the opposite of the inventory process. Emotionless investing is neither desirable nor possible. What is often described as emotionless investing is numb investing. Numb investing is as

If there is no credit problem, there is no solution

admin — Mon, 12 Mar 2012 10:03:45 +0000

The benefits of the inventory are enormous. Decades of mistakes will come to light. Solutions will be obvious. People are not capable of remembering directly the chain of logic and

How credit affects your basic human needs

admin — Mon, 12 Mar 2012 10:03:08 +0000

For each situation described above, write down how it affected your basic human needs, including the need for financial and material security, the need for self-esteem, the need for social

The super profits method for payday loans

admin — Mon, 12 Mar 2012 09:58:53 +0000

The general approach to valuation that we recommend business owners to take is to employ two valuation methods and to compare the results. Your final opinion could, perhaps, be based on the average of these two results. The two methods we suggest that you use are the ’super profits’ method and price earnings (P/E) ratio method, which are explained below. For completeness I will also explain the discounted cash flow and ‘industry yardstick’ methods.

The super profits method (or more accurately, the super profits plus net assets method) arrives at a total value of a business by calculating the goodwill value and the net asset value separately and then adding the two values together. It is used mainly in smaller private companies.

To calculate the value of a business using this method you take the following steps:

Step 1: Calculate the average super profits for the last three years – which we will call the maintainable super profit (MSP). Do not deduct taxation.

Step 2: Capitalise the MSP by a factor of between 1 and 2 to arrive at goodwill value. The rationale for this is that the goodwill value of a small private business represents one or two years’ before-tax MSP of the business.

Step 3: Calculate the value of the net tangible assets of the business. This is achieved by placing a gross current market value on a going-concern basis on all tangible assets, less any liabilities that are being taken over (for example, creditors and borrowings and lease payments owing on the assets).

Step 4: Add the goodwill value to the net tangible asset value to arrive at total value of the business.

How accountants understand good will in credit

admin — Mon, 12 Mar 2012 09:57:58 +0000

Accountants, being less philosophical than lawyers, look at goodwill more simply. A short accounting definition of goodwill is as follows: ‘Goodwill is the difference between the total value of a business and its net tangible asset value’. Although this definition does not necessarily make the concept of goodwill any easier for business people to understand, it does make goodwill easier to value, especially after a business has been sold. For example, assume a retail business with three shops is being sold for £300000, (excluding the real property). The value of the fixtures and
fittings in the shops is £50000 based on their written-down value and the value of the stock is £175 000 valued at cost. The value of goodwill would be: £300000 – (175000 + 50000) = £75000. Having got some of the basic concepts out of the way, we will now turn to the consideration of some valuation methods.

The role of good will in credit taking

admin — Mon, 12 Mar 2012 09:57:17 +0000

The notion of goodwill value is familiar to all business owners, although a precise description might be more difficult. Once we have looked at some definitions, we will tackle the question of valuing goodwill in a business. So, what is goodwill?

Legal definition

Probably the best-known legal definition is by Lord McNaughten in the case of I.R.C. v Muller and Company (1901) where he defined goodwill in the following way:

‘It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of a good name, reputation and connection of a business. It is the attractive force, which brings in custom. It is the one thing which distinguishes an old established business from the new one at its first start.’ This definition recognises that goodwill has the ability to bring in custom and, therefore, has a benefit, or value to a business, but does not go much further than that. You could, perhaps, deduce from this definition that goodwill is the intangible component of a business that enables the business to earn a greater income than could be generated by the net tangible assets alone.